Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

American International Group Inc (AIG): Mortgage Insurers Don’t Feel the Heavy Hand of Regulators’ Fines

A settlement was announced Thursday between the Consumer Financial Protection Bureau and four of the nation’s top mortgage insurers over the improper tactics used to win new business. The CFPB stated that the insurers — American International Group Inc (NYSE:AIG)Genworth Financial Inc (NYSE:GNW)Radian Group Inc (NYSE:RDN), and MGIC Investment Corp. (NYSE:MTG) — paid kickbacks to lenders who placed mortgage borrowers into their insurance policies.

American International Group Inc

Since mortgage insurance is generally required for loans where borrowers put down less than 20%, the market is a lucrative one, with insurers fighting for business. But with the practices outlined in the CFPB’s investigation, the four insurers paid to have the lenders place borrowers in more expensive policies than if true competition had won out. Though none of the insurers claimed any wrongdoing, they have promised to avoid any such dealings in the future, and all settled in order to avoid litigation and further “distraction,” as Teresa Bryce Bazemore, president of Radian Group Inc (NYSE:RDN) Guaranty put it.

They’ll pay, but not very much
The settlement calls for $4.5 million from both American International Group Inc (NYSE:AIG)‘s United Guaranty segment and Genworth Financial Inc (NYSE:GNW), while Radian and MGIC Investment Corp. (NYSE:MTG) will pay $3.75 million and $2.65 million, respectively. Most of the companies won’t see a dent in their bottom lines due to the regulator’s fines. In fact, the low cost to settle was another incentive to avoid litigation mentioned by several of the insurers.

The CFPB’s investigation may not be over. The lenders that participated in the schemes may soon find themselves under the microscope. And with at least a decade of dealings involved, millions of borrowers may have an opportunity down the road to recoup excess costs due to the lack of competition.

So what does this mean?
For investors, this news isn’t going to make a big splash. Though the news wasn’t positive, only American International Group Inc (NYSE:AIG) saw a decline in trading after the announcement, and it was down only 0.4%.

Insurer Daily Gain (Loss) Monthly Gain (Loss)
AIG (0.42%) (1.00%)
Genworth 0.53% 4.40%
MGIC 0.00% 16.51%
Radian 3.76% 3.55%

Source: Yahoo! Finance.

As you can see in the table above, very little impact from today’s news.

With regulator settlements, it’s often a one-and-done dip in trading, but in the case of this investigation, if banks get involved, or borrowers are able to file a class action lawsuit, there may be more ramifications for the insurers. Otherwise, this is just another example of how one day’s news doesn’t make a huge difference in your stock’s performance.

As most Fools would tell you, it’s important to know what news events will effect your portfolio, but don’t let one day’s trading get you down about a solid investment opportunity.

The article Mortgage Insurers Don’t Feel the Heavy Hand of Regulators’ Fines originally appeared on and is written by Jessica Alling.

Fool contributor Jessica Alling has no position in any stocks mentioned, but you can contact her here. The Motley Fool recommends American International Group (NYSE:AIG). The Motley Fool owns shares of American International Group and has the following options: Long Jan 2014 $25 Calls on American International Group.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.